The Final Rule on Hardship Distributions

Nov 15, 2019

On Sept. 23rd, the IRS published a final rule that relaxes several existing restrictions on participant hardship distributions from defined contribution plans.

Some of these changes are mandatory, requiring employers to make the changes by Jan. 1st, 2020, while others are optional. Though the IRS had issued the proposed regulations in 2018, the final regulations clarify a few key provisions:

The Loan-First Rule. The new rule removes the requirement that participants exhaust their ability to take a loan from the plan before being granted a hardship. This provision is not mandatory as some plan sponsors view the “loan first” requirement as helpful to participants. Unlike participant loans, hardships permanently reduce a participant’s balance and are subject to income taxes and a 10% early withdrawal penalty if participant is under age 59 1/2. So, taking a loan first may be in the participant’s best interest.

The Six-Month Rule. Starting January 1st, 2020, plans will no longer be required to suspend participant salary deferral elections following a hardship distribution. Prior to the final rule, the inability for the participant to continue contributing to the plan and the lost opportunity to receive matching contributions further compounded the leakage from a participant’s account caused by the withdrawal.

More withdrawal sources available. Effective in 2020, earnings on 401(k) plans are available for hardship distributions as well as safe harbor or profit-sharing contributions.

Disaster Related Expenses. The new rule adds a seventh category as an acceptable reason for a hardship withdrawal. Disaster related expenses for an employee who lived or worked in a federally declared disaster area is now a safe harbor category that automatically counts as a hardship withdrawal. The other six acceptable hardship reasons are:

Funeral expenses for the participant, his/her spouse, dependents, or beneficiaries,

Tuition expenses (fees, room and board, etc.) for the next 12 months of post-secondary education for the participant, his/her spouse, dependents, or beneficiaries,

Expenses incurred to repair damage or make improvements to the participant’s primary residence. Repairs must fall under the IRS’s description of a casualty loss. Damages must be sudden, unexpected or unusual and cannot be from progressive deterioration (normal wear and tear).

Showing Financial Need. Under the rules currently in place, employers and plan administrators must take into account “all relevant facts and circumstances” to determine if a hardship withdrawal is necessary. The new rule requires only that a distribution not exceed what an employee needs and that employees certify that they lack enough cash to meet their financial needs. Plan administrators can rely on that certification unless they have knowledge to the contrary. Plans are required to apply this standard starting in 2020.

For plan sponsors who use “pre-approved” plan documents for their 401(k) plans, the due date to amend your plan for the new regulations is the same as the tax filing deadline (including extensions) for the year in which the provisions become effective. For example, if the new rule is effective on January 1st, 2020 for a plan sponsor with a calendar fiscal year, the due date for amending the plan is the due date of the plan sponsor’s 2020 return including extensions. Regardless of the amendment date, compliance must begin on January 1st, 2020. For those who maintain individually designed plans, the deadline will be December 31st, 2021 regardless of plan year.

Plan Sponsors that took action on the proposed regulations should review their plan and operational processes to ensure compliance with the new rules and can contact us with any questions.

This newsletter is intended to provide general information on matters of interest in the area of qualified retirement plans and is distributed with the understanding that the publisher and distributor are not rendering legal, tax or other professional advice. Readers should not act or rely on any information in this newsletter without first seeking the advice of an independent tax advisor such as an attorney or CPA.

Roslyn Ross

PLAN ACCOUNTING TEAM LEADER

Roslyn graduated from Xavier University of Louisiana with a bachelor’s degree in business administration and a concentration in finance. She currently works in the RSG plan accounting department, which is responsible for processing contributions, distributions and loans. Additionally, Roslyn assists with annual census entry and plan balancing, and she is a member of the RSG participant call center team.

Julie Boss, QKA

PLAN COMPLIANCE ADMINISTRATOR

Julie has worked in the retirement plan industry since 2007 and joined Retirement Strategies Group in 2016. Her skills consist of the annual administration of 401(k) and profit sharing plans, compliance testing and the preparation of government forms. She is a member of the American Society of Pension Professionals and Actuaries (ASPPA).

Travis Barker, QKA, TGPC

SENIOR PLAN COMPLIANCE ANALYST

Travis has worked in the retirement plan industry since 2010. His areas of expertise include administration and daily recordkeeping of 401(k), Profit Sharing, 403(b), and 457 plans, compliance testing and preparation of government forms. Travis is an active member of the American Society of Pension Professionals & Actuaries (ASPPA) and the National Tax-Deferred Savings Association (NTSA) where he has earned the professional designations of Qualified 401(k) Administrator (QKA) and Tax-Exempt & Governmental Plan Consultant (TGPC).

Todd Barker, APA, SHRM-CP

PARTNER, NEW BUSINESS DEVELOPMENT

Todd graduated from Louisiana State University in 2007 with a degree in general studies. He is a partner at RSG and has worked in the field of retirement plans since 2007. His work experience includes retirement plan administration and recordkeeping for Defined Contribution plans. He is active in new business development and retention for RSG where he works with financial advisors and their clients to design and implement retirement plans that maximize the employers tax and retirement benefits.

Todd is a member of the National Institute of Pension Administrators and the Society for Human Resource Management, where he has earned the professional designation of Accredited Pension Administrator (APA) and Society for Human Resource Management Certified Professional (SHRM-CP). He is also an active member of the Association of Employee Benefit Planners of New Orleans and NOLA SHRM.

Shannon Olivier

PLAN ACCOUNTING ASSOCIATE

Shannon graduated from the University of New Orleans with a bachelor’s degree in psychology and a minor in business administration. She has worked in the retirement-plan industry since 2015 and is currently part of the RSG plan accounting department, which is responsible for processing contributions, distributions and loans. Additionally, Shannon assists with annual census entry and she is a member of the RSG participant call center team.

Nicole Young

PLAN COMPLIANCE ADMINISTRATOR

Nicole graduated from Loyola University New Orleans in 2005 with a Bachelor of Arts degree in graphic design and a specialization in marketing. Her areas of expertise include administration and daily recordkeeping of 401(k) and Profit Sharing plans, compliance testing and preparation of government forms.

Toni V. Superneau, ERPA, QPA, QKA

PARTNER, MANAGER OF PLAN COMPLIANCE

Toni has worked in the retirement plan field since 2001. Throughout her years in the industry, she has worked in plan installations and conversions, daily recordkeeping, and compliance administration. She currently oversees the Plan Compliance and Plan Accounting departments at RSG.

She is an active member of the American Society of Pension Professionals & Actuaries (ASPPA) having earned the professional designations of Qualified Pension Administrator (QPA) and Qualified 401(k) Administrator (QKA). She has served as an officer on the board of directors for the Association of Employee Benefit Planners of New Orleans and is enrolled to represent taxpayers before the Internal Revenue Service as an Enrolled Retirement Plan Agent (ERPA). Toni graduated from Loyola University New Orleans with a bachelor’s degree in Business Administration with concentrations in International Business and Marketing.

Malcolm McBee

PLAN ACCOUNTING ASSOCIATE

Prior to joining RSG, Malcolm received his B.B.A. in Managerial Finance and Banking & Finance from the University of Mississippi in 2014. Malcolm currently works in the plan accounting department, as well as serving in a support role to the senior compliance administrators. His duties include processing contributions and distributions, annual census administration, and compliance testing of 401(k) and Profit Sharing Plans.

Vina Nguyen

PLAN ACCOUNTING ASSOCIATE

Vina graduated from Louisiana State University in 2016 with a Bachelor’s degree in Mathematics and a concentration in Business Administration. She currently works in the RSG plan accounting department, which is responsible for processing contributions, distributions, and loans.

Denielle Bealer

PLAN ACCOUNTING ASSOCIATE

Deneille has worked in the retirement-plan industry since 2011. She attended Delgado and Nunez Community College and currently works in the RSG plan accounting department, where she is responsible for processing contributions, distributions and loans. Deneille’s additional responsibilities include managing mail, the electronic filing of forms, processing enrollment materials and she is a member of the RSG participant call center team.

Celina Clements

PLAN ACCOUNTING ADMINISTRATOR

Celina joined RSG in 2003. Since 1968, she has gained considerable expertise working with 401(k) plans and employee benefits while employed at Pan American Life Insurance Company and two oil companies. Her responsibilities at RSG in its plan accounting department include cash reconciliation, Fidelity check processing, distributions and loan processing. Celina attended Southern University and holds a Daily Valuation Certification from the American Society of Pension Professionals & Actuaries (ASPPA).

Robert Brierre

PLAN ACCOUNTING TEAM LEADER

Robert graduated from Delgado Community College in 2010 with a degree in computer information technologies. He has worked in the retirement-plan industry since 2012 and is currently part of the RSG Plan Accounting department, which is responsible for processing contributions, distributions and loans. Robert’s additional responsibilities include updating mutual fund changes in the MSCS BridgeNet and Relius Administration systems and assisting with annual census entry and plan balancing. Robert also provides daily support and troubleshooting services for plan sponsors and is a member of the RSG participant call center team.

Lisa Haydel, APA

PLAN CONVERSION ANALYST

Lisa graduated from Loyola University New Orleans in 2010 with a degree in business administration and a specialization in marketing. She is currently responsible for the management of new client implementation including the input of plan specifications in the Relius Administration system, establishing customized plan transition timelines with new clients, and ensuring a smooth new plan installation and plan asset/record transfer. Lisa is a member of the National Institute of Pension Administrators (NIPA), where she has earned the Accredited Pension Administrator (APA) designation.

Jamie Landry

SENIOR PLAN COMPLIANCE ADMINISTRATOR

Jamie graduated in 2004 from Our Lady of Holy Cross College with a degree in business administration with a concentration in information systems. She has been working in the retirement plan administration business since 2003, and her areas of expertise include administration and daily recordkeeping of 401(k) and Profit Sharing plans as well as preparation of government forms. She is an active member of the Association of Employee Benefit Planners of New Orleans and the Relius Southern User Group.
You can reach Jamie via phone at 504-602-1305 or via email at at JamieLandry@RSGweb.com.

Stephanie Bowles, QKA

SENIOR PLAN COMPLIANCE ANALYST

Stephanie has been working in the retirement plan administration since 2009. Her skills consist of daily and annual administration of 401(k) and Profit Sharing plans, compliance testing, and preparation of government forms. Stephanie is a credentialed member of American Society of Pension Professionals & Actuaries (ASPPA) where she has earned the professional designation of a Qualified 401(k) Administrator (QKA).

Dondrack Smith, APA

SENIOR PLAN COMPLIANCE SPECIALIST

Dondrack graduated from the University of New Orleans in 2007 with a degree in history and has worked in the field of retirement plan administration since 2007. His areas of expertise include administration and daily recordkeeping of 401(k) and Profit Sharing plans, and preparation of government forms and compliance testing. Dondrack is a member of the National Institute of Pension Administrators, where he has earned the professional designation of Accredited Pension Administrator (APA). He is also an active member of the Association of Employee Benefit Planners of New Orleans and the Relius Southern Users Group.

Maureen Lambert, QKA

SENIOR PLAN COMPLIANCE SPECIALIST

Maureen attended the University of New Orleans and, since 2001, has worked in the retirement plan administration industry with RSG. Her areas of expertise include administration and daily recordkeeping of 401(k) and Profit Sharing plans, compliance testing, and preparation of government forms. She is a member of the Relius Southern User Group and Association of Employee Benefit Planners of New Orleans. Maureen holds the certification of Qualified 401(k) Administrator (QKA) from the American Society of Pension Professionals & Actuaries (ASPPA).

Maureen Elwick

DOCUMENT AND PLAN INSTALLATION COORDINATOR

Maureen is responsible for the management of new client implementation. Her experience includes plan document and amendment preparation, enrollment materials preparation, input of plan specifications into the Relius Administration system, fund investment information into the MSCS BridgeNet system and client remittance processes through RSG’s Data Validation Center. Maureen began her career in financial services in 1975 and has specialized in retirement plans since 1997.

Cory Bender, ERPA, APA, APR

NEW BUSINESS DEVELOPMENT

Cory graduated from Louisiana State University in 2010 with a degree in business with a specialization in finance. He has worked in retirement plan administration since 2007. Cory’s experience includes administration and daily recordkeeping of 401(k) and Profit Sharing plans, and preparation of government forms and compliance testing. Cory is a member of the National Institute of Pension Administrators, where he has earned the professional designations of Accredited Pension Administrator (APA) and Accredited Pension Representative (APR). He is an active member of the Relius Southern Users Group and is currently a board member of the Association of Employee Benefit Planners of New Orleans. He is also enrolled to represent taxpayers before the Internal Revenue Service as an Enrolled Retirement Plan Agent (ERPA).

Joey Bender, APR

VICE PRESIDENT, NEW BUSINESS DEVELOPMENT

Joey graduated from the University of New Orleans in 1985 with a degree in management. He is a partner at RSG and has worked in retirement plan administration since 1990. His work experience includes the design and installation of qualified retirement plans as well as day-to-day administration of 401(k), Profit Sharing, Money Purchase and SIMPLE plans. Joey is an Accredited Pension Representative (APR), a designation conferred by the National Institute of Pension Administrators. He is also a member of the Greater New Orleans Executive Association and the Association of Employee Benefit Planners of New Orleans.

Bob Guidry, APR

PRESIDENT

Bob graduated from Loyola University in 1983 with a degree in computer science. He is a partner at RSG and has worked in the pension administration business since 1976. Bob is an Accredited Pension Representative (APR), a designation conferred by the National Institute of Pension Administrators. He is also a member of the Relius Administration National Daily User Group and the Association of Employee Benefit Planners of New Orleans.